The Australian dollar has tumbled to 61.88 US cents, its lowest level since October 2022, on the back of a sharp sell-off of the Chinese yuan and continued strength of the US dollar.
Earlier in the day, the currency fell below the previous low of 61.99 US cents, intensifying concerns about its trajectory.
The Aussie dollar is also now trading at 0.4940 British pence.
Further declines could test pandemic-era lows in the months ahead, with serious repercussions for monetary policy.
Yuan-driven slide
The fall in the yuan, particularly its offshore-traded version, has been a key driver of the Australian dollar's weakness.
Analysts attribute the yuan’s pressure to growing pessimism about China’s economic outlook, compounded by ongoing trade tensions and subdued domestic performance.
InTouch Capital Markets senior foreign exchange analyst Sean Callow noted that the yuan’s decline has directly impacted the Australian dollar, saying, "The yuan is finishing the year on a very weak note under a lot of pressure."
US dollar strength adds to pressure
The Australian dollar’s decline has also been exacerbated by a surging US dollar.
Analysts attribute the greenback’s strength to revised expectations that the US Federal Reserve will scale back the number of interest rate cuts in 2025.
Higher anticipated US interest rates have buoyed the dollar, increasing pressure on other currencies, including the Australian dollar.
The falling Aussie dollar has sparked mixed reactions across sectors.
While it offers a competitive edge to Australian exporters, it could raise inflationary pressures by increasing the cost of imports, particularly fuel.
Tourists heading to the US and to other greenback-linked destinations – may also feel the pinch from a weaker currency.
Reserve Bank intervention
Analysts suggest the Reserve Bank of Australia (RBA) may consider stepping in if the dollar drops below 60 US cents.
Potential measures could include delaying interest rate cuts or directly intervening in currency markets to stabilise the dollar.